XBox Division Still In Red – Will It Turn Around?

Microsoft posts losses in its Entertainment and Devices division for the second quarter that ended on December 31st, but it’s not actually the 360’s fault. Though the division posted revenue of $1 billion, advertising and development costs related to the Zune, Microsoft’s portable MP3 player, as well as advertising for the XBox 360 dropped the division into the red. Also cited as a reason for the loss is the extension of the XBox 360 warranty from 90 days to a full year and the hardware repair costs that Microsoft has accrued.

During the first half of fiscal 2007 (beginning midway through 2006), Microsoft sold 4.4 million XBox 360 consoles, bringing the worldwide total to 10.4 million. According to a report by Gamasutra, Chris Liddell, Microsoft CFO, has reduced the companies estimate of XBox 360 hardware from 13-15 million down to 12 million. “We are just being cautious about the second half. It was always going to be a slow half, ” said Liddell. “We’ve done very well in the first half. There is a reasonable amount of inventory in the channel.”

How long will Microsoft keep the Entertainment and Devices division going if they keep posting losses like they have. Now, to be fair, the losses this quarter are very similar to the losses last quarter, so it isn’t like they’re getting much worse, but it’s still a business. Of course, we all know that Microsoft has the money to keep going as long as they want, but when is it time to pull the plug? Not for quite some time. The XBox 360 is on track to outsell the original XBox, and with good software sales, the E&D division might start inching towards the black. If you think Gears of War sold well, then just imagine what Halo 3 is going to do.